High Brazilian Service Prices Help Inflation Soar

High consumer prices for airline tickets, meals, school tuitions and other services drive inflation upwards in Brazil.

By Chesney Hearst, Senior Contributing Reporter

RIO DE JANEIRO, BRAZIL – In Brazil consumer prices for services continue to increase and drive inflation higher. Making up seventy percent of the country’s GDP, the services seeing the highest increases include; transportation, food, school tuition and medical appointments.

Higher airline tickets and other increased service prices cause inflation to rise in Brazil, photo by Fernando Frazão/ABr.

According to a recent Fundação Getulio Vargas (FGV) survey, 74 percent of fifty services studied under the Consumer Price Index (CPI) showed inflation well above 1.69 percent in the first two months of 2014 alone.

In January and February, costs for school tuition saw the biggest increase of 12.45 percent. Airline tickets followed with 12.37 percent rise in price. Therapy sessions charges increased by 4.06 percent and medical appointments by 2.71 percent. Prices for dining out also increased, meal prices at restaurants increased by 9.97 percent, in just two months.

Although it is currently the high season and increases in prices and adjustments to tuition are regular during this period, the amount was higher than many anticipated. With a flood of tourists expected from all over the world for the upcoming FIFA World Cup in June, demand for services should remain high and their prices show no sign of decreasing.

“The service [prices] could go lower if not for the demand,” economist André Braz of FGV told O Globo. “Brazil will continue to be a much sought after destination for tourists and there will be an inflexibility towards the deceleration of service prices. Prices for fast food, snacks and restaurants will not yield.”

FGV research showed prices for dining out also increased, meal prices at restaurants increased by 9.97 percent, in just two months, image recreation.

According to the research and statistics organization IBGE, the consumer price index increased by 5.91 percent in 2013. The previous year saw a 5.77 percent increase nationally, however this is spread across all sectors and most in Rio de Janeiro would feel a much higher amount.

“This is bad news,” Santander Brasil economist Tatiana Pinheiro told Reuters. “Services prices keep rising nearly nine percent a year, over sixty percent of all goods and services had price increases, and the headline inflation rate ended the year well above the 4.5 percent midpoint of the target range.”

While a Brazilian Central Bank poll of one hundred economists predicted that Brazil’s inflation could increase to 5.97 percent in 2014, in January the Central Bank disclosed inflation expectations for the year of just over six percent.

In another attempt to curb consumer prices the Brazilian Central Bank again increased interest rates. In January of this year rates were lifted a half-percentage point moving the Selic interest rate, or overnight rate, from 10 to 10.5 percent. The action continued the tightening cycle that the Central Bank began in the country during April 2013 and marked the sixth consecutive half-percentage point increase.

In the end of February, Brazil’s Central Bank slowed the pace of rising interest rates, stating that their Selic rate will only increase .25 from 10.5 percent to 10.7 percent during the year.

President Rousseff, who will face a bid for re-election in October, stated that her administration will continue to fight against inflation. “We are making a big effort to make inflation converge to the midpoint of the target,” said Rousseff during a radio interview in Minas Gerais in January. “This is an important issue. The closer Brazil is to the center of the target, the more stable the country becomes.”

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